Russia's Pipeline Diplomacy: Back to the Future?

The politics of oil and gas in Central Asia, a region Russia has long claimed as its sphere of influence, is more likely to represent a flashpoint of international significance as opposed to President Putin's hawkish comments over US missile defence strategies on the heels of the recent G8 summit. Overlapping national interests could potentially lead to a deepening hostility among powerful powers, particularly between Russia and the United States — reminiscent of the Cold War.

In the past months, Russia has made it stand clear by moving one step ahead in concluding a pipeline deal with Turkmenistan and Kazakhstan. All parties agreed to construct a new pipeline around the Caspian Sea, which would give Russia more control over much of Central Asia's natural gas reserves.

Early responses from the US and certain Central Asian states were not positive. During her visit to Moscow in May, US Secretary of State Condoleezza Rice admitted that Washington was unnerved by Russia's growing energy wealth and its apparent use of energy as an instrument of political pressure. A roll-back of support for the US war on terror by many Central Asian states, especially those that host US military bases, was likely to have fueled Rice's charge.

Meanwhile, the presidents of Azerbaijan, Georgia, Lithuania, Ukraine and Poland recently organised a rival energy summit and endorsed a planned oil pipeline connecting the Caspian and Baltic Seas to establish their own energy corridor, so as not to depend on Russia. This swift retaliation not only reflects the rising temperature of energy politics in Central Asia, but was also put forward to offset Moscow's monopolisation of energy resources in regional markets.

Russia's energy policy has recently been reformulated as part of a rebuilding process, reaffirming its superpower status on the global stage. Currently, Russia has the largest natural gas reserves in the world totalling 48 trillion cubic metres, approximately about 27% of the world's total. It is also the world's top exporter of natural gas, owning 24% of the market share.

Russia may have its own bounty of natural gas, but its gas monopoly, Gazprom, prefers to distribute subsidised domestic gas internally while reselling Central Asian gas to Europe at prices that are typically more than double what it charges at home. The New York Times reported that Russia pays Turkmenistan US$100 for each cubic metre of gas and subsequently resells it to European customers for US$250 per cubic metre. US Vice-President Dick Cheney once referred to Moscow's wielding of its energy hand as a "tool for intimidation and blackmail."

The use of energy as a foreign policy instrument is evident, and perhaps the only perceptible instrument, in the complex relationship between Russia and the Central Asian states. Whenever relations between Russia and Ukraine, Belarus and Georgia turn sour, energy is employed to manipulate the political fallout.

Russia is also the biggest gas supplier to the European Union, accounting for about 30% of the EU imports. There has been an attempt by the EU to convince Russia to conclude an energy charter and transit protocol as a long-tern guarantee to supply Russian gas to Europe. The Russian master plan calls for a different course of action, with the economic and trade czars embarking on numerous bilateral agreements with countries like Germany and Denmark, deemed to be represent a gateway for the North European Gas Pipeline (NEGP), so as to manipulate the energy market and gas pricing in Europe. European diplomats perceive the Russian tactic as a threat to the collective energy policy of the EU.

In fact, the reach of Russian energy diplomacy is no longer confined within Central Asia and Europe. Russia has expressed a keen interest in doing business with East Asia, especially with China and Japan—the two countries that currently competing fiercely for new energy sources.

To respond to the mounting energy demands in East Asia, Russia has constructed an oil pipeline from Siberia to Nakhodka in the Pacific in order to facilitate direct sales to the energy-hungry states in East and Southeast Asia. Russia is also seeking cooperation with Vietnam, Myanmar and Thailand, with Gazprom spearheading investment and monopolising the exploration and production process.

The role of Russia as stable provider of energy power is gaining currency especially in light of the fluid political situation in the Middle East. Also, unlike the ideological Cold War that was to some extent intangible, oil and gas are tangible assets representing cash cows for the Russian state. They could therefore induce more serious conflicts should the "balance of energy" be deemed untenable. The fact that there are plenty of unexplored oil and gas resources in far-flung Siberia and other underdeveloped areas will undoubtedly give Russia overwhelming influence in the world's energy market in the long term.

As if to affirm the priority allocated to Russia's energy diplomacy, the government recently elected Deputy Prime Minister Dmitry Medvedev, widely viewed as one of Putin's possible successors, as the Chairman of the Board of Committees at Gazprom.

Now politically stable and flush with the cash as a result of high oil and gas prices, Russia has no overriding need to compromise, but rather, it is in a position to dictate how the energy game will play out. However, as energy becomes an increasingly important factor in international politics, Russia will also need to carefully calculate whether a new Cold War based on competition and control over energy resources is really in Moscow's interests.


Pavin Chachavalpongpun, a Singapore-based writer, is the author of "A Plastic Nation: The Curse of Thainess in Thai-Burmese relations" (University Press of America, 2005). 

Copyright: OpinionAsia, 2006 - 2007.
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